Brand Value and Long-Run Stock Returns

Abstract

Using Interbrands’ data as well as a novel text-based measure of brand value, we find that an equal-weighted portfolio of best brands earns a monthly excess return of at least 25 bps. This result is not due to firm characteristics, industry composition, small-cap stocks, or organization capital. The excess returns are driven by companies that develop their brands internally (i.e., not by acquisitions) and analysts underestimate future earnings of brand names in their forecasts. We highlight serious limitations of measuring brand value using past advertising expenses and find no abnormal returns associated with this (input) measure of brand value.

Keywords: Brand value, intangible assets, excess returns, undervaluation

JEL Classification: G01, G11, G14